Charles Schwab boss lays out battle plan to crush robo-advice
Robo and ETF cost-cutter Charles Schwab will use barriers to entry to see off startups.
Business schools teach companies to create barriers to entry to protect themselves from disrupters. While erecting barriers to entry can eat away at profits, schools teach, they’re great for protecting market share.
And Charles Schwab, it turns out, was a good student.
Facing potential disruption from robo-advice startups, Schwab CEO Walt Bettinger has said he will ride out to meet them. Schwab, he said, would lower its fees while using its brand and market power to see off any potential competition.
“While attractive, robo advisors may not be as innovative as some believe,” Mr Bettinger told a conference hosted by The Economist in New York City.
“We will leverage our scale, which makes our moat wider and wider, and less attractive for some firms to try and disrupt us.”
Schwab is one of the world’s largest asset managers, with over $3 trillion in assets. It is known in the ETF industry for having the lowest fees of any ETF provider. Its fees are so low in fact that its products are almost free.
Schwab’s strategy of cut-throat cost-cutting spills over into other parts of their business too. Faced with the entrance of robo-advice startups the last few years Schwab rapidly rolled out its own robo-advisor that was totally free. It then took talent from independent robo-advisors like Cynthia Loh, formerly at Betterment, to help head up its digital wealth management division.
Another arm of Schwab’s attack (or self-defense, if you prefer) has been to attack robo-advice startups in the media and at conferences.
“[It is] a fantasy that robo-advisors would take a dominant position in the industry,” Bettinger told CNBC last year.
“It’s very clear now that the original robo-advisors are struggling.”
Schwab’s play in robo-advice is the strongest of any asset manager, with the exception perhaps of Vanguard. But the stakes are high.
There will be more than $1 trillion in assets invested in robo-advisors by 2022, research by Boston consultancy Aite Group found.